How amazing are Prediction Markets?

I saw an unknown number call me for the 4 th time and attended to the call. It was from a headhunter who was looking for a Senior leader to lead prediction markets. Not that I was looking for a new role, but the role was pretty intriguing and asked him to elaborate on the role and didn’t get much other than this was gamification of financial services.
Being old school, I suggested that he needs to change his narrative as market manipulation was a bad thing and so not good for anybody. This also made me dig a little deeper into Prediction markets and sharing my POV.

Interestingly Prediction Markets have been around since the 1500’s when the citizens would bet on the outcome of Papal elections. US election predictions have been an object of betting on and by Wall Street since 1884 and were highly developed in the late 19 th Century. The Iowa Electronic Markets by 1992 had become a permanent internet-based exchange for election prediction and commercial online platforms like Intrade have been around since early 2000s. These markets focused on launch dates, project success, smart phone sales volumes and performance metrics by US companies. The Hollywood Stock Exchange (mid 1990s) used a play money approach to movie outcomes but with real price discovery features and larger user bases.
Intrade/Tradesports became high profile in 2002 with weather, politics and such before regulation shut it down. PredictIT (launched 2014) was a key US facing political prediction market until the CFTC moved to withdraw its no action relief in the 2020s.

Since then, exciting times today with regulated event contract venues like Kalshi and Polymarket and others leading the way for being the go-to Prediction markets for financial services and other verticals. Kalshi is licensed and supervised by the CFTC as a Designated Contract Market (DCM) and falls in line with regulation on markets surveillance, disclosure, preventing fraud etc. Polymarket was initially a CFTC entity but then through the acquisition of a derivatives exchange and clearing house now is regulated by the CFTC. Kalshi processed some 3 BN dollars for January to March 2026 vs approx. 2.5 BN dollars. Both are doing well and are growing in volume. Kalshi is the go-to for Institutional traders, hedge funds, prop shops and macro desks as a direct way to hedge macro views than traditional options, NO ISDAs required. Polymarket is a go-to for crypto-native and retail speculators, a preferred channel for Defi, Sports-betting and such.

Now the biggest question in my mind is “Are Prediction Markets good or bad for the economy.” Are we creating new risks or mitigating existing risks? Let us bring some other voices to this discussion. One of the exciting people who researched this space in its entirety is Robin Hanson, prominent economist and Associate Professor at George Mason University and arguably the Father of Prediction Markets. Robin argues that prediction markets are one of the best tools we have for aggregating dispersed information and that we should use them to make policy decisions. Hanson emphasizes that speculative markets have a remarkable ability to aggregate information as compared to polls, especially for information aggregation across election outcomes, GDP growth etc. One of the worries here in the current political context is that there are people with inside information gaming the system and profiting illegally.

Examples:
1. A newly created Anonymous account wagered c. $33000 on the capture of Maduro. This bet was placed hours before the Trump Government declaring its intention to do so which had a payoff to the bettor of about $450000.
2. Betting on US strikes in Iran, a few hours before the strike, made bettors about $400 K in profits.
These examples make one wonder if there is an amount of insider trading in prediction markets.

Robin Hanson makes the case for how “insider trading” improves price accuracy in prediction markets so long as if the information was obtained legally, we should be fine. Also, he distinguishes securities insider trading which is regulated differently from commodity derivatives where the focus is on misuse of confidential information. Meanwhile Seth Moulton, Democrat from Massachusetts recently announced an office wide policy barring his congressional staff from using prediction market platforms like Kalshi and Polymarket so that Government employees do not profit from every day policy decisions and world events that Government needs to respond to e.g. War , or Oil embargo and such.

These platforms have recently come under intense scrutiny to ensure we are not using them as a gambling opportunity, especially by insiders with access to Government information.
Both Hanson and Moulton and their work are key to seeing how prediction markets will be regulated in the future. Given that prediction markets are huge benefit to hedge funds and anyone with a research input into an Algo, this space is quite exciting to watch in the coming months.